Opinion: The best stocks for the virtual-reality revolution

Cody Willard writes the
Revolution Investing newsletter for MarketWatch and is chairman of social
website Scutify.com,
a community of investors and traders. He's also publisher of
TradingWithCody.com, where he
posts the trades from his personal account, and is the principal of CL Willard
Capital. Willard has been a TV anchor on Fox Business and a Wall Street
correspondent for the Tonight Show with Jay Leno. Follow Cody on Twitter
@codywillard and
Scutify.

Virtual reality is either one of the next great growth industries or it's already in a bubble.

I think there will be a virtual-reality bubble and it will peak in a couple years from now. In fact, I've come to believe that the virtual reality (VR) revolution is going to be every bit as big as the app revolution that I so adamantly predicted and invested in back in 2010.

You need to be careful about picking the technological revolutions you invest in. 3-D printing investors have learned the hard way that if you invest too early in the revolution, however real it ultimately might turn out to be, that you can still lose your shirt if the tectonic plates aren't actually moving yet. In contrast, you can already see the technological tectonic plates shifting for a virtual reality revolution that will change the way we watch movies, surf the Internet, do surgery and socialize on Facebook
FB, +1.08%

I'd also be remiss if I didn't mention the potential for VR pornography, as porn so often leads the application side of many of our technological revolutions. One way that you can be sure to see the technological tectonic plates shifting is when venture-capital firms begin to get involved in a big way.

According to a recent Wall Street Journal article, venture-capital funding for virtual reality and augmented reality began to rise significantly after Facebookannounced it was going to purchase Oculus VR Inc. for $2 billion in March 2014, which can be seen in the picture below:

Over the next few years, virtual reality will carve out its own niche in the consumer-electronics space if it can just prove to both consumers and investors that it is not a fad that will disappear and never be adopted by the mass market. I choose to put my faith in Facebook, AlphabetGOOG, +0.81%SonySNE, +0.18%
and the other VR pioneers that already have large networks of users and will dominate this market in the coming years.

Some dark horse small-cap plays on the VR sector include GoProGPRO, -0.36%Himax TechnologiesHIMX, -1.23%
and Vuzix Corp.VUZI, +2.47%
none of which I own. I think that when investing in an emerging technology revolution, it is important to go with the two or three companies that you believe will be the biggest players in the space over the long run.

The best quote from this very good WSJ article about Facebook's Oculus Rift VR: "Right now there isn't a single Rift title that I'm dying to play. Nintendo has Mario. The Xbox has Halo. PlayStation has Uncharted. Until Rift gets a legendary franchise of its own, it just isn't worth the plunge."

The most important part of the VR wars is getting developers on board. PlayStation already has a critical mass of developers and that gives Sony a leg up on FB's Oculus Rift and the HTC Vive headsets. Now with the much cheaper price point for the PlayStation VR Headset, Sony is definitely positioned as a leader very early in the VR wars.

While Facebook's Oculus Rift technology will (at first) be the high-end version of virtual-reality products, Google's approach will address the low end. Indeed, you don't need to spend $599 to gain access to VR technology; you only need to spend $2 on a plastic headset and download a few free "Google Cardboard" VR apps from Google. Both will see a lot of app developers and new innovations drive their respective VR platforms forward in the years ahead. Maybe Oculus Rift is to VR what Apple's iPhone is to smartphones, while Google Cardboard is to VR what Android is to smartphones, if you follow me. Sony is the Samsung of VR, I guess.

I've owned Facebook since just after its initial public offering, and Google I've owned for much longer than that. I do think Facebook, Google, Sony and some of the other stocks I own for the VR revolution can still double, triple or rise even more from their current levels in the decade ahead, in part because they already are positioning themselves to be some of the dominant players in virtual reality, which will become a multi-hundred-billion-dollar industry in the next decade or two.

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